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Us 7, U.s. 7, Taylor 5, Washington 5, Mexico 5, John 4, America 4, United States 3, John Taylor 3, Sheila 3, Detroit 3, Mr. Taylor 2, Mohammed 2, Kennedy 2, Martin Luther King 2, Europe 2, George W. Bush 1, Ms. Bair 1, Erian 1, Sheila Bair 1,
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  CSPAN    The State of the U.S. Economy    Series/Special.  

    August 25, 2013
    12:40 - 1:46pm EDT  

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>> thousands gathered at the national mall to commemorate gains in civil rights. at the national mall we heard martin luther king junior the third as well as the mayor of new work new jersey. we will take a look at their comments right now. this is not the time for nostalgic commemoration.
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nor is this the time for self- congratulatory celebration. the task is not done. the journey is not complete. we can and we must do more. this is that is for little children would one day live in a nation where they would not be judged by the color of their skin but by the contents of their character. his motherears of that they remind us can arrest and even murder with no regard for the content of one's character. regressive stand your ground balls must be repealed. federal anti-legislations must been enacted.
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comprehensive immigration reform must be adopted to end the harassment of our brown brothers and sisters and provide a path to citizenship just as with done who pass through ellis gay.d's splinted my father insisted that we cannot the rest and be satisfied as long as that vote could not vote. they believe they had nothing to vote. today the united state supreme court having recently not onlyed the act must we not be satisfied but we must fight act old the. part of martin luther king's speech that nobody ever
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quotes. they restore the voting rights act discarded by the supreme court. history was a commitment that african-americans gave full economic opportunity and not be confined to basic mobility from a smaller ghetto to a larger one. today was 12%. unemployment rates and the african community. 38% of all children and color living below the level of poverty. we know the dream was far from being realized. >> my father said it very simply. around our home, houston looked at me and say "
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boy, don't you dare walk around here like you hit a triple because you were not born on third base. you are enjoying things that were given to you but by the struggle and the sacrifices and the work of those who came before. don't you forget where you come from." you drank deeply from wells of freedom and liberty and opportunity. you eat lavishly from banquet tables are paired for you by your ancestors. me and my generation cannot now afford to sit back consuming all ,f our blessings, getting dumb fat, and happy thinking that we have achieved freedom. the truth of the matter is that the dream still demand that the conscious still calls us. that hope still need heroes.
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we need to understand that there is still work to do. of deathleading cause for black men my age and younger is gun violence, we still have work to do. we still have a justice system that treats the economically disadvantaged different than others. we still have work to do. when you can work a full-time job plus overtime and still be line of poverty. we still have work to do. see wages stagnating. one child poverty is increasing. when the rich are getting richer and the poor are getting poorer. when millions of our children are living in neighborhoods where their soil is toxic and the rivers are polluted and their air quality is so poor that asthma is academic.
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we still have work to do. we cannot sit back now thinking democracy is a spectator sport. all we can do is watch on our tv screens and cheer for our side. democracy demands action. we cannot sit back and get caught up in a state of sedentary agitation where we get so upset about the world going on but we do not get up and do something about it. we cannot allow ourselves to let our inability to do everything undermine our determination to do something. >> that was from yesterday's rally held at the lincoln memorial. you can watch all of the rally and the march on c-span.org another gathering will convene on wednesday this week. we will have remarks by president obama rise.
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>> let's begin with a very well- .nown american novelist what brought you to the march on washington? in thisas born a negro country. thereompletely, i felt was no way for me not to be involved during one of the most significant demonstrations to free americans that has ever happened in this country. >> up until very recently, i have expressed my support of civil rights largely by talking about it at cocktail parties i am afraid. like many americans this summer, i can no longer pay only lip urgentlyhat was so now.
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>> american history television marks the 50th anniversary of the march on washington with historic and roundtable discussions. a performance on the 1960s civil rights movement. the starts at 1:00 p.m. eastern. part of american history television every weekend on c- span3. >> next, a look at the state of the economy with former fdic and formera bair white house economic adviser john taylor. this is from the national press club last week. this is about one hour.
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>> good morning and welcome to the national press club. i am jennifer schonberger of the national journalists. the national press club is an organization for journalists. you can learn more about the club online. more than four years after the recession officially ended, the economy is stuck in second gear. gdp has grown less than two percent for three consecutive quarters. that is below the average growth rate of two percent for the duration of this recovery and well below the three percent rate economy has historically grown. incomes are stagnant and unemployment is high at 7.4%. workers dropped out of the workforce because they are discouraged. the housing market is improving. how much longer will our economy remain stuck in the mud. nearly five years into the financial crisis, what is the state of the banking system now?
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what can be done to pull america out of this tepid period of growth? we are joined by incredible experts on the panel. mohammed el-erian, ceo of pacific investment management company. sheila bair, senior adviser to charitable trusts. john taylor, professor of economics at stanford university and senior fellow at the hoover institution. he is well-known for the taylor rule, a monetary policy principle that offers guidance on how to tinker with interest rates to control inflation. taylor served as undersecretary of the treasury during the george w. bush administration and was part of the council of economic advisers.
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specimen so much for being here today. special thanks to mohammed el- erian and mr. taylor for flying from california. i want to kick off the panel with you. you coined the term, the new normal in 2009. your outlook for the economy has been dead on. how much longer is this economy going to remain in the new normal? >> let me take you back to 2009 when the new normal concept came out. the idea was to signal that it would not be your traditional cyclical recovery. unless the mindset in washington changed, and there was a better understanding of the underlying dynamics, we risked getting stuck. in a keyword of unusually sluggish growth, high unemployment, that is when it
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materialized. go back to the concept of the economy stuck in second gear. let me push this analogy. it is not just stuck in second gear, it is being driven on a foggy road. there is some good news. we are doing better than others. europe was in reverse and just went to neutral. japan has been neutral for a long time and just jumps to first gear. we are doing better than others. other good news is there is no reason why this economy needs to be driven in second year. this car is capable of being driven in third, fourth, or fifth gear. the question is why? manual transmission in order to shift gears, you need to press the clutch. you can try doing it otherwise, but you risk --
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the minute you start pressing the clutch, you go from what is technologically possible to what is politically feasible. the problem hasn't been that it is not technologically possible, it is just politically not feasible. a couple of things have happened. one is the attempt to shift gets frustrated. you need only look at some pretty good initiatives that have gone to congress and have been almost dead on arrival. the second is you have another driver, the fed, which has been trying to force change but haven't been able to do it using proper instruments. that is why the benefits have been less than what were expected and the cost or the
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collateral damage has become a concern. >> where do we go from here? >> let me tell you what should happen. it is important to make the difference between that and what is likely to happen. what should happen is you should have a political coming together on the four things this economy needs. the problem is that the political debate is very -- right now. we need structural reforms. we need more balanced aggregate demand. we need to deal with debt overhang and persistent behavior that underlines this economy. we need some really good micro elements that have to do with the education system and labor retraining. >> until we get that -- >> until we get there, we are stuck at two percent. the longer we are stuck at two percent, the more potential growth we are coming down. the problems get structurally embedded. look at long-term unemployed and youth unemployment. >> mr. taylor, the economy has changed since the recession.
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many workers don't possess the necessary skills to meet the available job openings. are we looking at permanently higher unemployment for some time to come? >> i don't think we are. the problem with the unemployment rate remaining high with job growth hardly keeping up with the population could change. it depends very much on policy. to me, it is not so much second gear although i like the analogy. it is more this big heavyweight on the back of the car that is slowing the economy down. i think a lot of it is the policy. you could look back at previous expansions. deep recession in the early 80's, growth was five percent per year. it has been 2.2% in this recovery.
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it is dramatic. i think you could learn from history about what to do. >> you don't think we are going to remain in permanently higher unemployment? >> there are certainly eight injured we will. i think it largely depends on policy. one of the things that could lead us in this direction is complacency. the attitude -- way back when we thought unemployment normal was four percent, there was a time where the council of economic advisers, we said because of demographics, let's call it 4.9. it was viewed as incredibly
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pessimistic to say 4.9. now, we are talking about maybe 6.5. it is taking this discouraging performance and making it what we expect for the future. there is a danger to go in that direction. >> sheila -- >> i agree with that. we can do better. there is political dysfunction in washington. politicians say, this is the best we can do. i think i would agree. i think getting rid of the loopholes, expenditures, bringing the -- rate down, identifying infrastructure spending, retraining the workforce, there are things we need to do. we need to make our country more competitive so that other people want to buy. >> is it safe to say that politics is the greatest impediment to growth? will the economy be held back? >> yes.
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that is the biggest obstacle. the second one is the mindset. we grow up believing that finance was the next level of capitalism. that somehow, you better agriculture, manufacturing, services, and if you are really lucky, you can do finance. the description of my industry changed from financial services which is this notion that you served the real economy, to finance with the notion that your standalone. we need to realize that right now we don't have a financial service industry that supports the economy enough. there is a mindset issue. i agree with john and sheila that we have to go back to genuine drivers of growth
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instead of this love affair that we have with leverage and debt entitlement because that will put us into another crisis. >> coming back to the present situation, income inequality is growing. lower income households are struggling. the one percent is doing just fine. we haven't seen protests in the streets like in europe, but what is the risk of the social fabric of america beginning to fray? >> it is fraying. it is fraying because we started out with social inequality and now it is getting worse. it is getting worse because of the policies we are pursuing to try and restart our economy. if the fed is the only policy making entity in play today in washington, not by choice but by necessity, the fed can only act using indirect policies. it cannot invest in infrastructure. it cannot change the tax code.
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it has to convince people to do things. how does it convince people? the idea is very simple. maybe companies will invest more who owns financial assets? you have this irony in using imperfect policy by necessity, you make income inequality worse. >> ms. bair, do you believe that this is contributing to the widening of income inequality? >> i do. it is not trickle down. it has resulted in financial asset inflation. that benefits people who own financial assets who are the wealthier folks.
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there are not quality jobs. the vast majority of people in this country -- they don't own financial assets that have been inflated through this aggressive monetary policy. i think they wanted to create jobs but it is not happening. >> what is the biggest risks to the economy right now? >> i think the unsustainability of the course that we are on. we have tepid growth and we are too much trying to go back to the past. it is just not sustainable. you need real wage growth. you need production of real goods and services that others will want to buy. fueling growth through increasing levels of leverage causes collapse. i am afraid with cheap interest rates, that is what it is designed to do. it is not sustainable. i am in the process of writing a
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book for young adults on the crisis and i have been interviewing families who were impacted. there are a lot of people out there still on the edge. they are just finally making it back, but they are making maybe two thirds of what they used to make. >> speaking of the fed, there is a sense that the fed is going to pull back on bond purchases. we have seen bond rates rise. how much higher do you see bond yields and interest rates rising? will it choke off growth even more? >> >> bond yields are rising because financial markets behave differently. economists like to look at the journey and i am very rational that the journey can take one step here, one step here. financial markets look at terminal values, the
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destination. they ask themselves, what is the destination look like and can i get their first? if you get to the right place first, that is where you want to be. the minute the fed starts talking about tapering, you saw interest rates take off. we have now a significant tapering as early as september. that has an impact. you have seen the housing market we can. you are seeing the effect of that. the fed is trying to play defense. the first attempt to play defense was to talk back that pull back the tapering. the second attempt was to use its second instrument to try to compensate for the effect of the first. the second instrument is experimental forward guidance. would you see now is the fed
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attempting to convince people to do things by using aggressive forward guidance in order to limit the impact of high interest rates. the one thing to remember, and this is really important, is that we are in a period where the fed is using experimental policies that have not been tested. it is like a doctor that gives you a medication because he or she has to do so that hasn't been clinically tested. when that medication doesn't work well, i will give you a bit more of it. not any better, i give you a bit more. that is why this notion is so important. >> let's talk about the fed's unconventional policy. have we created new sources of financial instability? >> i would say the caveat is it is harder to get out.
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they need to get out on a gradual, slow basis. at the end of 2000 well, some studies show there were 90% of new issuance back to securities. so, i would say tapering would be on a very long time frame. hopefully, that would be combined with new fiscal policy. it will not give us some short- term sugar high, but long-term economic benefit. i think that could work. they have been away too long, but they need to get out very slow. >> professor taylor, you coined the taylor rule. what is your take on the fed's policy? what course of action would you take to this?
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>> i think what you're seeing now, what sheila and mohammed are concerned about, is exactly what those of us who are very wary about quantitative easing worry about. it was clear that something like this would happen. this is exactly why so many people were concerned. from nobel prize winners to former chairs of fed, very concerned with this whole action. at this point, you try to get out of it. it reminds me of what happened in the 70s. people realized that this terrible policy of the fed wasn't working. it took a long time to get out of it. i think the number one thing should be getting back to normal policy. we had a good monetary policy that has worked very well. we have gotten off of that.
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it is very unpredictable. who knows what is going to happen next? markets are hard to predict. if mohammed can predict them, you can see what it is like. lay out a strategy, get back to normal policy. if not now, when? it is not going to be easy. but that is what this economy really needs. it needs predict ability about policy. go around the world and talk to central bankers. they crave the day that they can go back to normal policy. >> you advocate a tapering right now? in september? >> i would get started with it. they have laid out a plan already. they have to worry about how they communicate this. i think the strategies are not laid out as carefully as they could be. i think a strategy, we have recommended strategies to make sure the tapering is -- i say
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tapering means stopping purchases before you start to raise rates. i think you have to drive down the balance sheet. that is going to take some time. >> right now, we are on course for lifting interest rates in 2015? would you advocate that or something sooner? >> i would say right now there is inconsistency in the policy statements. the idea of a zero rate in 2015, even if the economy is sluggish likely think it will be, it is probably going to look too low when 2015 comes around. that inconsistency is in the markets. right now, there is a promise of zero rates but when the time comes, it looks like we go to be higher. >> professor taylor, your name has been brought up in certain
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seconds -- circles as a potential candidate for the chairman of the federal reserve. ben bernanke will be stepping down in january. any interest in the job? [laughter] >> absolutely not. [laughter] >> one thing that is great about our country is we have this civil society where people can be on the outside and comment and criticize. i am very comfortable with that role. [laughter] >> what happens when the fed does begin to pull back? how will that impact the economy is to mark will it help or hurt? >> we do need to be back to normal. it is going to take a long time. john, i am willing to wager that unless the other things happen, unless the political system gets better, unless the drag, the
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headwinds that we face on the rest of the world -- rates will be incredibly low. i will take you one step further. in the short term, what you're going to have, the fed purchases have inserted a wedge. between sluggish fundamentals and asset finance. the reason we worry is we worry that the behavior is inconsistent. people are taking too much risk. sheila was worried about the mismatch that banks were taking. the fed cannot control the long end of the curve. you will see one of two things. either the fed's policy will work, low probability but it may work.
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it doesn't need to press the accelerator so much. to echo what john said, this is not about hitting the brake. this is about taking the foot off the accelerator. alternatively, asset prices will come down to reflect fundamentals. when that happens, that becomes a drag on the economy. that is what we worry about most. >> can i make a comment about the impact? if you think about -- , it was .if you think about -- , it was first announced december of last year. the 10 year treasury rate was 1.7 at both of those times. it got to 1.9 this week. i pe effect fromis week.
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this quantitative easing. it is just not there. i know many people think it is a boost to the stock market, but if you look at fundamentals, you can explain a lot of what is happening. i think people need to realize, we don't know the impact of these policies. it is experimental. i see them as negative. to me, it is a reason to get out. i am not the only one. i can give you a long list of experts as well. they worry this is a drag. there is going to be a negative as you get out of it. ultimately, i think it will be better. >> mohammed, to your point on interest rates at zero in 2016, obviously the fed has said that when it tapers purchases, it will keep zero interest rates in place until the labor market
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improves. are zero interest rates a trap? we are trying to unwind these policies. japan has been the poster child for that. they have been pursuing quantitative easing for 20 years. >> at the risk of being controversial, first of all we are in a liquidity trap. are they in a trap in the sense that we are staying there underestimating the impact? you have to tell me what the counterfactual is. if other policies get their act together, then they are trapped. if they are discouraging as they are allowing politicians to become complacent, then they are
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trapped. if the alternative is absolutely no support, then they are not trapped. i just want to go back to this notion of what is happening underneath. i have a 10-year-old daughter so i am particularly sensitive to the details of unemployment. i look at two things. one is the 16 to 19-year-olds unemployment is 25%. at that age, if you remain unemployed for long you become unemployable. there is a continuous entry of people into the labor force who are very much like you. that number, the longer it persists -- anything that can be done to support the economy and
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make sure we have the skill set will be better. the second number is the unemployment rate depending on what education you get. the average 7.4%, it is not a good average but it is the one everyone sees, if you haven't finished high school, it is 11%. >> we are going to talk about how to get out of this. before that, i want to talk about the u.s. financial system. september will mark the five- year anniversary of the five- year anniversary and the collapse of lehman brothers. what is the state of the banking system now? >> i think it is certainly safer than it was. it is not as safe as it should
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be. many of the rules that we really need to have have not been finalized yet. we have got more capital banks primarily through the stress testing process. i worry about sustainability over time. they have raised the amount of capital that financial institutions can use to fund risk-taking. those rules have not been finalized yet. they were voted on some time ago. it is a work in progress. credential standards which was a key component for dr. frank, they were proposed over a year ago. again, there is a lot of pushback.
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we don't know what will happen. before that is finalized, and different people have different views, nonetheless, it is important from a legal standpoint to get these roles done. i have to say, there has not been enough progress. those focused on march financial institutions and instabilities may create, those are barely even started. >> you brought up power regulators. you said you have been in favor of strengthening them and you are -- this is a good idea? will banks have sufficient padding with new rules in place? >> the group that i chair, we have abdicated a minimum eight percent.
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they are at six percent now for insured banks. only five percent for holding companies. that would include both the insured bank and some nonbank affiliates. i think the minimum should be eight. six percent is an improvement. it seems like they should -- you shouldn't have insured banks subsidize greater leverage. i hope the fed will change that. i think those were tremendously positive. i think estimates were another 90 billion of capital. we hope to strengthen those rules further. this is important. capital, more than anything, gives you a stable financial system. we don't know what the next thing maybe. if you have capital, there will be annexed her cushion. we have learned that these hybrid instruments don't have
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absorbing capacity. it has to change. the focus is now on tangible common equity. >> [inaudible] >> when i became chairman of the fdic, there was a rule that would have let the largest institutions take on leverage. studies show that they could take on more leverage and we fought it off. we heard from the banks, we don't need more capital, these good times would last forever. we know how to manage our risk. that is what they said in good time. in bad times, you can't raise our capital, it will hurt our ability to lend. it is never a good time.
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an interesting thing, the way they risk weight now is securities and derivatives. with a leverage ratio, you're going to be reducing the capitol advantage of securities and derivatives over lending. >> if the new capital requirements do go through, would it cause the nations largest banks to break up and become smaller? >> i don't know. there is probably a lot of hyperbole. they may need to get smaller. they may sell assets to do this. some people say that is terrible. i don't think it is a bad thing. >> do you think that downsizing will unlock economic growth? >> it is complexity more than size.
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suddenly, the larger you are, the more difficult it is to manage. the leverage ratio will hit securities and derivatives harder than lending. i don't think that is a bad thing at all. if the fed continues with higher leverage outside, then it may move into the holding company where there is less regulatory scrutiny. i don't think that is a good result. there are plenty of studies that show better capitalized banks do more lending. they have the capital to absorb the loss. that is why you saw smaller banks doing more lending during the crisis than the big ones. those are the ones that were suffering the market loss. it is commonly said, bad loans give us the crisis. there were a lot of bad mortgage loans out there.
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what accelerated it were the structured products, the synthetic derivatives, the sudden losses on those. that is what got us into trouble. the underlying loan losses, as substantial as they were, they accumulate over time. i think the system could have observed that. getting banks to do more lending is a very positive thing. >> officer taylor, weigh in on this. what is your sense of doubling capital requirements? how will it impact the flow of credit in the economy? >> it is not really a doubling. some are higher already. wells fargo, the numbers are probably above. we will have to see. i think it is correct to look at
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this leverage ratio rather than the risk weight at some extent. the numbers show leverage ratios from three percent to six percent on average. i don't think a percent is going to be a problem. why are you doing this is the question. partly it is to reduce the risk in the system. also, if there is another panic, then we have these from time to time, you don't want the government to get into another mode of having to bail out. that is a dangerous situation. by having more capital, i think subordinate debt can help as well. you reduce that risk. that would improve the financial system. >> a couple of senators have proposed the idea of -- good idea? >> i think that idea will gain a
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lot of traction. i think other than that, i welcome it because it puts directional pressure on regulators saying, we don't think you are doing enough. i like the fact -- to have a 15% leverage ratio higher than the minimum. i think that is positive. i have argued in my book that i don't like insured deposits. i would like to see all of that moved out. as long as there are strict firewalls. make the market fund it. it will be more expensive if the market has to fund it. i think that will create activities. that is what i have argued, a complete split by statute.
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i think it is tremendous that the bill has been introduced. it goes to the right place. it puts more pressure on regulators to do more. >> let's talk about what needs to be done to pull america out of this tepid period of growth. you spoke to it a little bit earlier but if you could delve in more. >> we need to do two things. we need to boost growth to its potential. secondly, we have to enhance potential growth. the first step is going back to what i spoke about. actual growth is held back by first a lack of structural reform. everything from infrastructure to facilitating the labor market.
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labor mobility is going down. giving clarity to companies of what the fiscal regime is going to look like. that is important if you are planning to invest. that is one reason why companies prefer to hold cash. you have a whole set of structural reforms that can enhance productivity, that can contribute to money being put back into the system. i believe that you can safely expand aggregate demand. edit more fiscal, focused on infrastructure. i think the return investment in this country is high. for those who didn't live like john and i did through the market crisis, a debt overhang
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discourages new capital from coming in. if you don't know, think of detroit. would you lend to detroit today? you wouldn't. you would want to find out what happens to others who lend to detroit. there is the longer-term agenda. that has to do with potential growth. that speaks to education. it speaks to some micro things that we should be doing. one of the problems of the fed being the center of attention is it diverts discussion away from other things. there is this whole set of other things that are more important for us and for the next generation, that this whole narrative have shifted away from. >> as chief of the white house global council of economics, what types of new projects are
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you working on? >> you have promoted me. [laughter] i am grateful to be chair of the council on global development. the notion is very simple. part of securing u.s. national security and economic future and living in a global neighborhood that is more prosperous. it has had numerous advantages. the idea is to contribute and bring in outside perception. we are a council made of people from very different backgrounds and experience. it is a wonderful collection of people. we have gotten to know each other over the last few months and we are working on a few major initiatives. our hope is to supplement what
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is going on within government. enhancing america's contribution. >> how do we rejuvenate the american economy? >> i think we need stronger political leadership. our elected officials -- we don't have a fiscal policy. the lack of attention on job creation has been astonishing to me. as i have said before, i think there are different ways to approach it. i am big on tax reform. i think adding rid of these unexpected expenditures where
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the government is giving you a tax benefit versus what made more economic sense, are very harmful. make us more competitive internationally. i think we should do major infrastructure spending during national infrastructure bank. it should fund self-sustaining projects. i think we should do it. we should be all in. that is a better role for government than subsidizing housing. i would love to see that. republicans have a long tradition of supporting infrastructure spending in the past. we need to get smarter about education policies. we need to retrain the workforce with greater technical expertise. we need immigration reform done right. we also need to make sure there are jobs. we need to make sure there are jobs there for them. those would be on the top of my
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list. people just seem to want excuses for not doing anything. back to my earlier point, i'm afraid they will say the government can't do anything. they don't try any more. >> mexico had this problem. i don't know if you saw this article last week. their economy and country very much drifted off. now, they have new leadership in place and they essentially made a pact to compromise. is that something we need to do? >> when i worked in the senate in the 80s, you're a member of at stuff. 86 tax reform. cleaning up the tax code of as many expenditures as you can. those were all compromises.
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republicans and democrats worked together. it worked. it gave us many years of prosperity. it would be lovely to see that again. now, it is more people in our markets and political system. you're focusing on your next election cycle. i don't get that. why do you want to be in public service if you are not leaving? you have a responsibility to govern. that is what taxpayers are paying you for. >> professor taylor, how do we jumpstart the economy? >> the paperback version of my book on this is just out. it is called first principles. when you look at our recent
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history, you see the kind of things that make the economy strong and weak. i pointed to five things. the more we pay attention to the rule of law, predict ability of policy, emphasis on market incentives and the role of government judged on cost- benefit analysis. based on the philosophy, i think it is pretty clear. on fiscal policy, there is still unpredictability. there are two budgets out there. they are so far different from each other. that has to be settled. we didn't mention entitlement reform. don't forget that. that is where the big debt issue in the future is coming. some certainty about that would provide predict ability. on the tax code, i agree 100%. it is a no-brainer that we need to get corporate rates down and reform the personal system. tax reform has got tied into the notion that you need more revenues.
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classic tax reform, it worked with president kennedy and reagan. you reduce rates and expand the base. it creates economic growth. we got away from that. one of the things that i think we need to face up to is we have had a lot of regulatory increases in the last few years. dodd frank has a huge number of regulations. any rules haven't been written yet. that is a drag. the new healthcare law, there is a lot of uncertainty about that. that affects behavior. that is a drag on the economy. we have to think about how we deal with that. compromising isn't easy. there are different philosophies about what will work and what won't. that is why discussions like
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this are helpful. it is sometimes doing the right thing, not just compromising for compromising sake. >> i agree on entitlement reform. the regulatory uncertainty is very important. i get frustrated with all the pushback on getting the rules finalized because our system has proven to be very resilient. the financial service industries interest is to get this done. >> let's talk about the president's proposal for tax reform. the president is proposing to cut the corporate tax rate to 28% from 35% and a limited loopholes. it has been fuzzy on the treatment of overseas profits. the president has said in exchange for simple tax systems, he would like to use one-time funds to repair roads and
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bridges and improve community college system. >> there is an example of a tax reform that meets a test john taylor put up. lower the rate, expand the base. it is better for growth and provides an opportunity to invest in something that we need that private public partnership can't do easily. there are certain things in infrastructure we need where you need the public sector to take the lead. i would go back to the president's job plan last year. most people would agree too many components of this. it didn't go anywhere. it speaks to what john said which is, the minute a proposal
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is put forward, the political system encourages not consensus building and modification to make it a better proposal, but the political system encourages that it should die. that is a problem. it has not to do only with the cycle, but the reality of something that has been written about a lot. if your morning for reelection, you are most likely threatened by the extreme of your party. that impacts behavior when you're in the government. that is why good proposals are not even discussed on the basis of merit. >> i think that is a technical question. i agree with both. tying them together, there is an
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issue about whether that is smart. i think getting corporate tax reform done itself is important. capitalizing infrastructure bank is important. whether you're going to end up getting either one -- i don't know. my commentary would be tactical, not so much policy. >> this is a very important question. when you talk about tax reform, it is best to think about tax reform -- the goal is more growth, more revenues, lower unemployment. tax reform means lowering those rates and broadening the base. basically, you're not trying to generate more revenue. you are stacking the cards
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against tax reform if you link it to these other things. your linking these other things and that reduces the chance. take tax reform, the classic way president kennedy and president reagan got it through and it would be a tremendous and to get that tax reform done. >> what about the new american energy bill? to hydraulic fracking, can that be something to reinvigorate growth and much just in the sense of higher it's a veryction >> important thing. policy makes a big difference. if you encourage these types of activities, it could be a tremendous boon. it also reflects the reason to be optimistic about the united states.
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analogy that this economy has a huge weight behind it, if you remove that wait, we could get back to higher growth rates. i'm worried this economy will never be become a real recovery. early 1980sin the and it is two point two now. we may never get back to that and that would be a real disappointment. energy is just one example. we can do it. >> i would go back to taking the card out of mexico. make members of congress, mize. >> with this new and administration, mexico is even better. but mexico has been doing pretty well relative to the united states during this expansion. the net immigration flow has actually become zero. between mexico and the united states, because the mexican economy has done better than the american economy in the last few
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years. and until recently, the emerging markets themselves. it is almost like they're trading places. we used to encourage the emerging markets to follow these principles, and they have for the most part. at least there look -- they're moving in that direction, and we seem to be moving away. it is discouraging. we should be following the cut the principles that made this country great more than we have been recently. going back to monetary policy, they have been jolted to some extent by our own monetary policy. the headlines yesterday in the wall street journal, india is shocked by the removal of quantitative easing. we have done some of this ourselves. the more we can get back to our principles, the better off we will be. >> what about immigration reform? it is obvious the fluid piece of legislation depending on the form of the bill takes, if it gets through, is that something
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that could boost economic growth as well as the social security system? >> it will be good for growth and also for politics. it will be something that people can point to. we're not there yet, but i hope we can be. but i would not say it is the magic bullet to get the economy moving. >> any thoughts on immigration reform? >> i think we should have added a while ago. if you just look at what is being proposed and will -- and if you look at the impact long term, not that it has any short- term negative effects, but again, it speaks to a political system that cannot get its act together. let me mention one other thing. john introduced it. there are two views about the world and the u.s. and global economy. the one view is the stronger we
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are, then the better the global economy is, and therefore, we should do whatever it takes to get stronger, or regardless of what the economic realities are. that is one view. the other view is we are the issuance of the global currency issuer of the global currency. we provide a lot of public goods. we are in the middle of the global system. we hold it together. and therefore, when we implement policies, we need to be about the feedback loops through the rest of the world. what is happening today, to pick up on what john has said, when you look at the newspapers, the rest of the world finds it very difficult to navigate a world in which the u.s. is speeding the way it is. and the results of that is that the most powerful engine of growth in the last few years,
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the american world, is slowing down. and the reason why u.s. companies had been able to do well despite the sluggish economy in the u.s. is because they have been selling abroad. now the risk is we see increasing policy of coherence in countries like brazil, indonesia, not because they have suddenly become a net, but because it is very difficult to navigate a global system with that is so fluid with capital flowing in and out. they will tell you that they are dealing with what is called tourist spots. when a tourist goes to a developing country, they normally go with great enthusiasm. they're going to go see a lot of nice things, etc. then suddenly, something goes wrong and they don't know the country well enough. the first reaction is to go to the airport and get out. a lot of capital has been pushed out of the u.s.
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and has gone to countries -- it's called crossover capital. is not dedicated capital, but crossover capital, where investors do not fundamental interest and the risks they are underwriting. the minute something goes wrong, even if it is temporary and reversible, the temptation is to bring the money out. that is what you're seeing going on right now in the emerging world. that is destabilizing to countries that have been pursuing a pretty good policies so far. >> we have just a couple of minutes left. i will go ahead and open up the far too many journalists and members of the press -- open up the floor to journalists and members of the press who have questions. >> you mentioned entire reform and one of things that came up with health care. healthcare has been deemed the biggest threat to the government in terms of paying for things.